Radius Health: Earnings Update Strengthens Long-Term Thesis
Summary
- The stock reacted weakly to Q4 earnings.
- I provide a recap of the bullish thesis.
- TYMLOS launch continues to progress well, and the patch opportunity appears underappreciated.
- Elacestrant provides high optionality and could create much value for shareholders. However, a potentially pivotal study won't get underway until the second half of the year.
- While not a ROTY idea (near-term upside), the stock has significant long-term potential and could be added to the Core Biotech model portfolio.
Shares of Radius Health (NASDAQ:RDUS) have dipped significantly since its Q4 earnings report was released.
Figure 1: RDUS daily advanced chart (Source: Finviz Elite) (Disclosure: Contains affiliate link)
In my original article, I noted that my bullish stance was a result of significant insider buying, progress for the launch of TYMLOS (reimbursement, longer-term data, regulatory catalysts, potential partnerships) and encouraging results for RAD1901 (elacestrant) in heavily pretreated ER+ breast cancer patients. A $300 million convertible offering also extended its operational runway significantly.
In my update piece from late January (accessible with ROTY subscription or SA PRO), I noted that insiders were continuing to buy and results for elacestrant continued to impress (ORR exceeding rates for approved endocrine agents in second and third line ER+ breast cancer) while addressing a large market opportunity as a monotherapy or in all oral combinations. A CHMP opinion for TYMLOS was in sight, and I reminded readers to keep a close eye on quarterly updates as the launch unfolds.
There were a few highlights from its fourth-quarter report that I believe strengthen the bullish case or at least prove it continues to play out in the right direction.
The TYMLOS launch continues to progress well (quarterly sales totaled $7.7 million in its second full quarter of generating revenue). Reimbursement and coverage trends are favorable (259 million covered lives, 93% coverage in commercial plans, Medicare Part D coverage increased to 41%). Market share has risen to 32% of new patients starting anabolic therapy and 13% of total prescriptions.
Figure 2: Promising trends in market share growth (Source: Q4 slides)
A labeling supplement was also submitted to the FDA which included data from the ACTIVExtend trial. An agreement was reached with the FDA for a clinical study in men with osteoporosis that will begin enrolling patients in the first quarter.
As for the abaloparatide-transdermal patch, the FDA agreed that a single randomized, open-label, non-inferiority trial enrolling up to 500 patients would be sufficient to gain approval. Although a commercial supply agreement was inked with 3M to prepare for the study, it won't get underway until the middle of next year. I noted before that this option would likely be preferred over self-injections and their bridging strategy makes sense (already been shown to achieve target exposure and half life comparable to SC).
Figure 3: Opportunity to expand anabolic market not currently being appreciated (Source: Q4 slides)
As for progress in Europe, an opinion from the CHMP is still expected in the first half of the year for abaloparatide-SC in treating postmenopausal women with osteoporosis. This came after a third regulatory delay (Day-180 List of Outstanding Issues).
In regards to elacestrant, as a result of feedback from the FDA, a randomized mid-stage study evaluating the drug candidate as a third-line monotherapy will enroll 300 patients with ER positive/HER2 negative advanced/metastatic breast cancer. The study should get underway in the second half of the year and potentially could lead to approval (or accelerated approval) if results are positive. This program provides much optionality in my opinion.
It should be noted there are a number of presentations worth tuning into in the coming months (Cowen March 12th-14th, Deutsche Bank May 8th-9th, BofA Merrill Lynch May 15th-17th, and Goldman Sachs June 12th-14th).
At the end of 2017, the company reported a cash position of $430.3 million, while net loss for the fourth quarter rose significantly to $71.0 million. R&D expenses fell slightly to $22.9 million, while SG&A expenses almost doubled to $50.7 million.
Radius Health is a Conviction Buy.
Readers who have done their due diligence and are interested in the story should purchase a pilot position in the near term. I suggest readers take advantage of current weakness to add to their positions.
One risk is the possibility of another secondary offering later in 2018, likely considering the current cash position and growing burn rate. Disappointing regulatory updates for TYMLOS, setbacks in expansion efforts or in the launch, and also inability to ink partnerships are all potential areas of concern. Setbacks with other pipeline candidates including disappointing updated data for elacestrant (unlikely) or delays with launching a pivotal study should also be considered carefully. Keep in mind that generic Forteo could become available as soon as the end of 2018, which would offer competition in the form of a lower-cost alternative.
It is my hope that you found this article helpful - as a reminder I publish my medium- to long=term ideas on this free platform (including the popular Core Biotech series), while my writing on select ROTY stocks (near term upside) is solely accessible with a subscription. The ROTY community continues to grow and I'm excited about what we have to offer and the potential to help other traders/investors achieve their goals.
Disclaimer: Commentary presented is not individualized investment advice. Opinions offered here are not personalized recommendations. Readers are expected to do their own due diligence or consult an investment professional if needed prior to making trades. Strategies discussed should not be mistaken for recommendations, and past performance may not be indicative of future results. Although I do my best to present factual research, I do not in any way guarantee the accuracy of the information I post. Investing in common stock can result in partial or total loss of capital. In other words, readers are expected to (and encouraged) form their own trading plan, do their own research and take responsibility for their own actions. If they are not able or willing to do so, better to buy index funds or find a thoroughly vetted fee-only financial advisor to handle your account. I am in a collaborative relationship with The Biotech Forum/Bret Jensen.
This article was written by
Jonathan Faison is a biotech investor with over 15 years of biotech investing experience.
He leads the investing group ROTY Biotech Community, a community of 400+ experienced biotech investors, profitable traders, industry veterans and novices. Members receive access to model portfolios, high conviction ideas and a very active, helpful Live Chat. Learn more.Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (10)
